Malegam panel caps MFI interest at 24%

Malegam panel caps MFI interest at 24%

The committee recommended a cap of 24 per cent for interest on individual loans and an average “margin cap” of 10 per cent for MFIs having a loan portfolio of Rs 100 crore and of 12 per cent for smaller MFIs.

In the interest of transparency, an MFI can levy only three charges such as processing fee, interest and insurance charge, it said. To qualify as a NBFC-MFI, the report said the NBFC should be “a company which provides financial services pre-dominantly to low-income borrowers, with loans of small amounts, for short-terms, on unsecured basis, mainly for income-generating activities, with repayment schedules which are more frequent than those normally stipulated by commercial banks.”

It also specified limits on an annual family income at Rs 50,000 and an individual ceiling on loans to a  single borrower of Rs 25,000, while not less than 75 per cent of the loans given by the MFI should be for income-generating purposes.

It also clamped restriction on services to be provided by the MFI in accordance with the type of service and maximum percentage of total income. Further it suggested measures to mitigate the problems of multiple-lending, over borrowing, ghost borrowers and coercive methods of recovery. Not more than two MFIs can lend to a single borrower.

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